Tax news, social formalities relating to teleworking and contribution system for independent partners/shareholders

1. Tax News

• Adjustment of tax brackets and tax credits

The legislator has adjusted the income tax scale, with effect from 1st January 2024. This will result in tax reduction for all taxpayers.

• Regarding tax credits, the following changes have been made:
  • The “Crédit d'Impôt Conjoncture” (CIC) tax credit has been abolished as of 31 December 2023.
  • A new energy tax credit CI-CO2 (maximum 168€ per year) has been introduced from 1st January 2024.
  • The maximum annual amount of the employee tax credit (CIS) is now 600€ per year (instead of the previous 696€).

• Meal vouchers

The reform of meal vouchers has been introduced from 1st January 2024. The face value of the meal voucher may be increased to 15€ without changing the employee contribution (2,80€). However, the new limit is optional and not mandatory for employers.

The use of meal vouchers is now strictly limited to the purchase of food, with a daily limit of 5 meal vouchers.

2024 will be the last year that paper vouchers can be issued. From 2025, employers will be required to switch to a digital card. 

• Tax tolerance thresholds for telework

From 1st January 2024, all cross-border workers from Luxembourg's neighbouring countries - France, Belgium, and Germany - may telework outside Luxembourg for 34 days (an increase from 19 to 34 days in the case of Germany) on behalf of their Luxembourg employer, while retaining full taxation of their salary in Luxembourg.

• Company cars
  • Benefits in kind

Vehicles with a lease contract signed before 31 December 2024 can still benefit from the current scheme, provided that the vehicle is registered before 31 December 2025.

• • VAT

Guidelines:

On 20 January 2021, the Court of Justice of the European Union issued a judgment (the "QM” judgment) providing guidance on the circumstances in which the provision of a vehicle may be classified as a "long-term hiring of means of transport" and the resulting implications.

Three cumulative conditions must be met in order to qualify as a long-term hiring of means of transport:

• • The vehicle must be made available to the employee for a period of more than 30 consecutive days;
  • The employee must have the permanent right to use the vehicle for private purposes;
  • A consideration must be paid. The vehicle must be provided "for consideration" by either:
    • Payment by the employee to the employer;
    • The employer withholding part of the employee's remuneration;
    • The employee choosing between different benefits offered by the employer based on an agreement between the parties whereby the right to use the company car implies the renunciation of other benefits.

As a result, companies operating in this way will be subject to these new rules, which now provide that company cars will be subject to VAT in the employee's country of residence.

Impacts

This decision will result in VAT obligations for the employer in the employee's country of residence:

• • • Both resident and non-resident employees will be liable for VAT, which will affect their salary calculation.
    • The employer will have to collect, declare, and pay this VAT to the authorities in the employee's country of residence. This can be done through the single European registration system "MOSS" or through direct registration in the employee's country of residence.

In order to comply with this circular, the companies concerned must estimate for each of their employee the share of VAT due to the country of residence, according to the calculation methods specific to each country, and deduct this amount via the salary.

* To be confirmed

** For simplification reasons the German tax authorities currently might not challenge the computation of a taxable basis based on the benefit in kind.

Risks

• • • The jurisprudence of the Court of Justice of the EU (CJEU) should be applied from the date of the decision, i.e. 20 January 2021, with the exception of Belgium, which has opted for retroactive application from 1st July 2021.
    • Failure to comply with VAT obligations will be subject to the fines set by each country. For example, in Luxembourg, the fines range from 250 EUR to 10.000 EUR per offence (failure to register for VAT; failure to file a return; etc.), and a penalty of up to 10% of the amount of VAT due may be applied.
    • We encourage our clients to work with us to analyse the impact of these new reporting requirements, whether in terms of salary calculation, new VAT reporting obligations or the resulting accounting implications.

2. Social formalities relating to teleworking

As mentioned in one of our previous newsletters, we would like to remind you that for your non-resident employees, administrative formalities relating to social security must be completed with the authorities in the country of residence.

With regard to social security, employees who work up to 25% of their working time in their country of residence must declare teleworking and multiactivity, in particular using the forms of multiactivity, in order to obtain the applicable legislation decision (ALD).

Employees who meet the criteria of the framework agreement, which among other things sets the limits for exclusive teleworking in the country of residence at between 25% and 49% of working time, must complete other formalities to apply for an A1 form.

3. Contribution system for independent partners/shareholders

As mentioned in one of our previous newsletters, the statutory social security contributions paid by partners and shareholders are private expenses that can be deducted as special expenses in the income tax return.

The Circular no. 46/2 of 23 March 1998 allowed these expenses to be deducted by the company. This possibility will no longer be permitted by the tax authorities following the repeal of this circular on 26 July 2023.

As a result, the statutory social security contributions payable by partners and shareholders but paid by the company and booked as operating expenses, now have the character of a hidden dividend distribution (art. 164 no. 3 LIR).

4. Miscellaneous

• Employers’ contributions – The Mutuality of Employers

In order to limit the impact of the 3rd index bracket in 2023, it has been decided that the employers' mutual contributions will be significantly reduced in 2024:

• The 2023 income tax return forms are online since 5 February 2024. Our teams are at your disposal. 

Contact

Any questions? Please contact our experts at the following email address: HRpayroll@lu.gt.com.